American bankers talk about the vulnerability of the dollar: an analyst by Chaslau Koniukh.
The coronavirus pandemic has caused enormous damage to the world economy and revealed the vulnerability of the US market. It has forced many investors to reconsider traditional processes, to think about the reliability of the dollar as an asset. Their doubts are also shared by reputable American bankers from JPMorgan and Goldman Sachs, who recommend investing in gold, not in the national currency.
Analysts at JPMorgan conducted a study, where they came to the conclusion that those measures that central banks are taking to stabilize the global economy, can slow down the processes and devalue currencies. In this case, the cost of gold, on the contrary, will strengthen. Despite the fact that the dollar is less vulnerable than other currencies, still in the form of investments should pay attention to the precious metal.
Bankers assess the situation not only in terms of inflation, but also taking into account the weakness of the financial system. On the international arena, the yuan is expanding its influence, and recently its digital version. Electronic money may become a direct threat to the American currency, although it will not come soon.
However, if the development of the digital yuan continues at an active pace, the threat of ousting the dollar from the market will be quite realistic. In addition, the EU, which is also working on the electronic version of the euro, should not be discounted. This type of currency has good prospects – they operate outside the banking system, do not need SWIFT, which will reduce the leverage of the U.S. in financial terms.
That’s why big American banks weigh all factors and risks and develop new strategy. The Coronavirus pandemic has shown the system’s weaknesses, and in order to protect its assets, one must act with caution. Bankers and investors understand this and have already started buying precious metals. However, they were not the first to see the prospect in bullions. The central banks of European countries and China have been building up gold reserves for several years now, returning to the state assets that were kept outside of the country. We can say one thing – reconfiguration of the financial system has already begun, but how quickly it will be implemented and where it will lead – it is difficult to say yet.
Another blow to the dollar may be the reduction of Chinese investments in US bonds. Now Beijing owns $1.1 trillion worth of securities, but intends to reduce their number in the near future. Such actions are a reaction to the aggravation of trade conflict between the countries. Such a situation is extremely unfavorable to the White House, which increases the issue of securities to support the economy.
Chaslau Koniukh supports the recommendations of bankers, who at the moment recommend to take a closer look at investments in gold. All of the above factors may lead to weakening of the dollar and on the distance, for investors, it may affect financially for the worse.